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Cross-sectional averaging and instrumental variable estimation with many weak instruments

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  • Kapetanios, George
  • Marcellino, Massimiliano

Abstract

The present paper suggests a new way to carry out IV estimation with many instruments. Our suggestion is to cross-sectionally average the instruments and use these averages as instruments. We provide a theoretical and Monte Carlo analysis of this approach.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4YTN3TY-1/2/81148b4705cfa73251b8406f1c433e95
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 108 (2010)
Issue (Month): 1 (July)
Pages: 36-39

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Handle: RePEc:eee:ecolet:v:108:y:2010:i:1:p:36-39

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Instrumental variable estimation 2SLS Cross-sectional average;

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  1. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  2. repec:att:wimass:9220 is not listed on IDEAS
  3. Donald, Stephen G. & Whitney Newey, 1999. "Choosing the Number of Instruments," Working papers 99-05, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. John C. Chao & Norman R. Swanson, 2005. "Consistent Estimation with a Large Number of Weak Instruments," Econometrica, Econometric Society, vol. 73(5), pages 1673-1692, 09.
  5. Alastair R. Hall & Glenn D. Rudebusch & David W. Wilcox, 1994. "Judging instrument relevance in instrumental variables estimation," Finance and Economics Discussion Series 94-3, Board of Governors of the Federal Reserve System (U.S.).
  6. Rothenberg, Thomas J., 1984. "Approximating the distributions of econometric estimators and test statistics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 15, pages 881-935 Elsevier.
  7. D.S. Poskitt & C.L. Skeels, 2002. "Assessing Instrumental Variable Relevance:An Alternative Measure and Some Exact Finite Sample Theory," Department of Economics - Working Papers Series 862, The University of Melbourne.
  8. Hahn, Jinyong & Kuersteiner, Guido, 2002. "Discontinuities of weak instrument limiting distributions," Economics Letters, Elsevier, vol. 75(3), pages 325-331, May.
  9. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  10. Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 657-81, May.
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